The Swiss banking secrecy effectively over, other jurisdictions cooperating with authorities, and the risk of whistleblowers forcing others to reconsider to do so. Tax havens are under a lot of pressure (though far from under threat of extinction) these days, so where to turn next if you are not willing to pay up in your local high tax regime? Sure, new locations will spring up to fill the void left by the outgoing participants, but why roam the globe for a post box on some exotic island when you could do it without leaving your couch? All you need is an Internet connection and the will to get accustomed with virtual currencies.
But seriously, that the future of tax evasion may not lie in countries like Panama, but in the Internet has already been part of the IMF study published in January this year. In its paper “Virtual Currencies and Beyond : Initial Considerations” (http://www.imf.org/external/pubs/ft/sdn/2016/sdn1603.pdf) the authors also pointed out that cybercurrencies could be used to avoid taxes.
In an interview with the German newspaper Frankfurter Allgemeine Zeitung the Austrian tax expert Tina Ehrke-Rabel, explained that “virtual currencies like Bitcoin could be the new model to reduce the tax burden”. According to her, interested parties are still in the phase trying to work out the specifics, but warned that tax authorities weren’t prepared to deal the threat.
The beauty of Bitcoin for the sake of tax evasion lies also in the fact that it isn’t limited to high rollers that can afford the services of pricey consultants but is also available to the Average Joe.
Think about it: a virtual currency that doesn’t leave traces, financial resources available regardless of where you are. All you need is your encrypted password and unless you have the authorities looking over your shoulders while you buy bitcoins it will be rather difficult to put your name to it.
For those that prefer an extra layer of protection, there are always the services of so called tumblers. Tumbling or mixing is the process to disguise payment flows by using a third party to break the connection between the address that sends bitcoins to the ones that receive them. After all, since the Bitcoin blockchain is a public ledger that records every transaction, and even if you’re not planning to buy drugs on the dark net and you simply might not be keen for the whole world to see or hide your savings from your partner, so it doesn’t get caught up in case of a divorce. Even for the not so tech savvy, step-by-step guides are openly available that explain in detail how every deposit can be tumbled in only a couple of minutes.
No wonder law enforcements agencies worldwide are keen to understand how cryptocurrencies can be monitored and regulated to fight tax evasion and money laundering. However, and here comes the catch, the backers of the technology argue that laws aren’t necessary since the blockchain technology guarantees the highest degree of transparency, at the latest once a user wants to exchange bitcoins into traditional currencies, which does leave a trace.
Add the risk of volatility in the value of virtual currencies and the threat of hacking attacks that surround them, you will have to have the nerves to get into the game, but so does leaving your hard earned cash with some guy in a banana republic on the other side of the globe, right?
Note: This article does not intend to be a guide on tax evasion. Anyone trying to evade taxes might find themselves in violation of tax laws in many jurisdictions.